Prosecutor Mauro Mura told a press conference in Cagliari, Sardinia, that wiretaps indicated the suspected terrorists had been planning a bomb attack at the Vatican in March 2010.
There had been “signals of some preparation for a possible attack”, including the arrival of a suicide bomber in Rome, the Associated Press quoted Mr Mura as saying.
“We don’t have proof, we have strong suspicion,” police chief Mario Carta said.
But Vatican spokesman Federico Lombardi issued a statement saying: “From what it appears, this concerns a hypothesis that dates from 2010 which didn’t occur.
“It has therefore no relevance today and no reason for particular concern.”
Police earlier said those arrested came from Pakistan and Afghanistan and the operation was ongoing.
The suspects were accused of staging attacks against the government in Pakistan.